How to Buy Dividend Paying Stocks

last updated 2017-08-28

Stocks that pay dividends are a great way to get recurring money. How to buy dividend paying stocks--and how to find them.

The stock of any company worth owning eventually makes money for its
shareholders. Some companies reinvest their profits in the companies
themselves. Other companies acquire smaller companies. Some companies pay dividends.

A dividend is a small payment of earnings paid to shareholders in proportion
to the amount of stock they own. It's like the interest you earn on a savings
account. You've invested in something that makes money and you're entitled to
some of that money. Dividends are attractive for investors who make a living
off of their investments. Rather than buying and selling stocks in hope to make
a profit on a monthly, quarterly, or yearly basis, dividend investors rely on
checks every few months. The best stocks pay every quarter.

Using Google's Stock Screener

A stock screener is a tool to search for stocks by various
financial attributes and criteria. This can help you find stocks that pay
dividends by searching for stocks with a decent dividend yield.

The Google Finance
Stock Screener is free, effective, and easy to use. On that page, you
should see a form with several criteria. You need at least the P/E Ratio and Div yield (%) criteria.
(If you don't see those, click on the Add criteria link. Under
Valuation, select P/E Ratio and under Dividend,
select Div yield (%).)

These little selector boxes let you set minimum and maximum values. In the
dividend yield box, set the leftmost value to 2 and the rightmost box
to 100. This will look for all stocks which pay dividends worth
between 2% and 100% of the current stock price. You're unlikely to find a stock
paying a 100% dividend rate, and 2% is about as low as you want to go. (A
really good company like Coca-Cola might pay a
dividend rate of 2 or 3%.)

In the P/E box, set the leftmost value to 0 and the rightmost value to 18.
This will look for all stocks where the current price is between zero and 18
times more than the company earns in a year. The historical average for stocks
in general on the S&P 500 index tends to be
around 15, so you'll have a lot of options. A stock with no earnings—or a
stock that's wildly overpriced for its earnings—won't appear, which is
good. You're trying to exclude lots of stocks now.

When you finish setting your results, you'll see a table containing the
details of several hundred stocks. The names of the columns of that table will
contain the criteria you selected. Click on the Div yield (%) header
to sort the table by the highest dividend yield.

Now you have a place to start looking for stocks which pay good dividends.
Play around with other criteria. In particular, you might be able to narrow
down results by setting a minimum market cap of 200M or more. This
will exclude smaller companies which may be more volatile or be harder to buy
and sell. For example, the top stock by dividend yield at the time of this
writing was Oi SA, a Brazilian
telecommunications stock. Click the stock symbol to go to Google Finance's
detail page.

Analyzing Dividend Paying Stocks with Trendshare

Not every stock with a high dividend yield is worth owning. Some of them
might even be overpriced. That's where your value investing research comes in.
As with any other stock worth owning, you should be able to come up with a
plausible story about what the company does, why it's worth the price, and how
it'll continue to make money year after year.

Once you've found something you like in the Google screener, go to the Trendshare stock search page and search for the
company's symbol. For Oi SA, search for OIBR. If Trendshare has
already analyzed the stock, you'll get our analysis, including our
recommendation whether or not to think about buying it. If we haven't analyzed
the stock yet, we'll put it on our list and try to get you an answer in the
next few minutes.

Obviously we don't have all of the answers about all of the values,
but with a little bit of automatic financial analysis, we can tell you whether
the company looks like it might be worth owning. If not, we'll tell you and you
can move to the next potential stock.

How to Get Dividends

Once you've found some likely candidates, go to your discount Internet broker,
deposit some money, and purchase your stocks. Done! That was easy.

Then you wait. Keep in mind that companies which pay dividends will announce
that dividend several weeks before they pay it. They'll also announce the day
on which you must hold the stock to be eligible to receive the dividend (the
ex-dividend date). Once you've purchased the stock (before the
ex-dividend date), sit back and wait. You'll get your dividend. If it's a good
stock, this will be the first of many.

Are High-Dividend Stocks Worth It?

In our personal portfolios, we consider a stock with a three monthly
dividend check a bonus. It's not the only reason to own a stock, but many good
stocks do pay good dividends. It's more important to us to own stocks in great
companies than to chase a dividend of 6% or 8% or 10%; far too often those high
dividend yields are from companies with real financial troubles, and those
yields won't last.

With that said, sometimes the market really does offer you a good discount
on a great stock. A great stock at a good price with a good dividend is a real
find. A dividend yield of 2% combined with a company that can increase its
value by 10-12% annually is really nice to have. Stocks that pay dividends are
easy to analyze in terms of the value they provide you; they should be one tool
in your investing toolkit.